Personality Case Study: Dan Zanger
Dan Zanger’s biggest (though certainly not only) claim to fame in trading the stock markets came when—in a little less than two years—he turned a little less than $11,000 into $18 million. That’s a mind boggling 164,000 percent in profit! Sounds more like lottery playing than market trading, right? This feat is widely regarded as the world record for the largest percent change for a personal portfolio in any stock market for either a 12-month or an 18-month period of time.
This staggering performance landed Dan on the cover of several magazines, such as Fortune, Forbes, and Stocks & Commodities. And in a business where many traders make bold or unsubstantiated claims and tell exaggerated “fish stories,” Dan backed it up by showing Fortune Magazine his 1999 tax returns and trading records indicating that it was all true!
Dan Zanger grew up in the San Fernando Valley area of Los Angeles. His father was a physician, whereas his mother was a psychologist. He dropped out of college and moved to the Rockies to try snow skiing for a few years. Next, he had a few odd jobs, such as bellhopping, driving a cab, and working as a prep cook. None of these did he find adequately satisfying.
Eventually Dan moved back to LA—with no education and no profession or trade to call his own. He started working for a landscape company and eventually got his own independent contractor’s license. Building swimming pools in Beverly Hills, he made a modest living. He wanted more challenge and more freedom.
Dan’s mother, Elaine, loved the stock market, and he would often watch the business channel on TV with her, fascinated by the workings of Wall Street. One day in 1978, Dan saw a stock explode across the ticker crawl at the bottom of the screen. He made his first stock purchase, at $1, and sold the stock a few weeks later for a little over $3. Although the profit from that one trade was rather miniscule, he was enticed by the idea of a huge percentage gain in a brief period of time. He started dabbling in stocks on the side to begin with and eventually went on to get out of the swimming pool business and become a full-time trader. With the personal computers and trading software programs coming onto the scene in the late 1970s and early 1980s, Dan found that he was able to quickly review hundreds of charts in a single night in preparation for his next day’s trading. For the next several decades Dan had his share of winning streaks.
Dan was, of course, a successful trader both prior to and following his incredible 18-month run. He just wasn’t a “household name” in the trading industry. Today he is, and Dan Zanger is widely followed by traders around the world in his “Zanger Report”—a newsletter that assists others in trading, based on his use of charts. He makes no bones about it: Charts are all that matter in his trading decisions.
Dan is also the first to admit that the astronomical profits he made during the peak of the tech bubble may never be repeated again. But he continues to be a very profitable and reliable trader. Trading is still his primary source of income, and he trades only for himself. He spends over 70 hours per week trading or researching trades and on average takes around 10 to 20 positions in the stock market per week. His average trade is intermediate in duration (5 to 30 days). And although Dan relies heavily on charts and indicators to help pick his stocks, he uses discretionary trading and not mechanical systems to pick entry and exit points. Interestingly, in our survey of top traders, Dan was the only one who felt that managing emotions was “very important” to having success at trading (all of the other traders rated it as “extremely important.”)
What stands out most about Dan’s NEO-AC results is that he actually has a high score on the anxiety facet (N1). Almost all of our big-league super traders had low or very low anxiety scores, and only a small handful had average anxiety. Only Dan and one other trader sported an elevated N1 score. So this was a curious finding, and one that certainly deserves attention—the thought being that, if Dan can be a successful trader with this unusual trait, others like him might be able to as well. In fact, hoping to learn the secrets of managing anxiety, I was more eager to talk to Dan about his high N1 anxiety score than I was to talk with the successful traders who consistently have a predisposition to low anxiety. Dan was an outlier and an oddity in our research, and so I wanted to find out what this was all about. Dan told me this:
I am an anxious person. That is certainly true. I always have been. The way I get past my anxiety in the here and now of volatile markets is to look at the big picture. I use historical reference points in the markets, the big drops over the past 20 to 30 years. By doing this, I am better able to appreciate things. It helps me hold onto my winning positions during a minor correction. It puts it all into perspective. The temptation is to get out of and then back into the market at each anxious moment, when really what I should be doing is raising more cash to support my current position—if I really know, based on good information, that it is the right one.
Also, anxiety of losing money has saved me many times. It helped me avoid many breaks in the market. So to me, I see my anxiety as a good thing. I have a clear understanding that the power of the markets can wipe you out in a heartbeat. I know that my anxiety may push me to reduce my positions quickly. But I also know at the end of the day I am going to have more wins than losses if I stick to my guns and what I think is really happening in the markets. And my bigger gains from making the right calls based on solid logic will compensate for the smaller losses I sustain from losses related to anxiety.
I have no tolerance for slow-moving stocks. I am a swing trader, not an investor. And I am clear on what I do. I pick my spots. I wait for the right setup. This forces me, an anxious person, to be more patient. As I am sitting there, looking at a stock, trying to figure out if I should hold it or fold it, I go through this very cognitive process. But I think that my anxiety has allowed me to hone my skills of knowing what is going on in the behind-the-scenes games that are being played on Wall Street.
Some people who follow my trading think I am psychic. They think I must have some mystical power to be ahead of the curve so often in the markets. But I think it’s really part of my anxiety. It’s almost a degree of being paranoid, although I don’t know if that’s the best choice of words for your book! Of course I’m not really paranoid. What I mean is that my anxious trait allows me to really read the markets and be in tune with them. It’s hard to explain what I mean, but it’s like I have a better pulse on the markets because of it. So I have learned to use it.
Dan scores low on the order facet of conscientiousness (C2). The clear trend with successful traders is this: Low scores in C2 correlate with traders who employ discretionary trading methods to make money, while high scores in C2 invariably are linked to traders who turn to mechanical systems to dominate the markets. Sure enough, Dan describes himself as a discretionary trader:
I am always looking for a stock that screams, “Buy me!” I look at the fundamentals—its earnings, if it’s in a popular group, whether or not it’s overextended or even over-sold. But in general, as an individual investor I want to be the fly on the back of the pachyderm. When the pack moves, I want to be traveling right along with it, going in the right direction, basically going along for the ride. So I am very selective about which pachyderm I land on and when. From my perspective, mechanical patterns never get you very far. I am looking for that big explosive swing in the market, and the only way I know how to do that is to use discretionary methods, looking for the ripe moment when the pack busts out. Systems can’t predict that.
Dan also commented on his slightly high excitement-seeking (E5) score:
I am a thrill seeker by nature. But I also know that the markets are here to take your money and not to make you money. It’s just like a casino in that sense. The casino was built to take your money, and so too was the market. That’s just the cold reality of it. Reminding myself of that fact helps me to put the brakes on and helps me make sure that I am not getting into the markets just for a thrill. It forces me to be very careful about when to buy a stock. I have to be very calculated and disciplined. Otherwise I could easily get caught up in the latest market craze. I see myself as an “ice cold trader,” and I try to keep things black and white and be methodical in what I do; I force myself to take the emotional thrill out of it. But at the same time, inside I know I love the thrill. I always liked thrills. As a kid I liked fast cars, and that’s why I liked speed skiing.
When I was working in the swimming-pool business and first learned how to spot a hot stock, and especially predict increasing valuation of stock, it was a thrilling experience. In fact, I think it’s brought a real freedom to my life, and it’s become my passion, that thrill of picking winning stocks. It really has been a life of freedom. I don’t have to take care of retail customers, worry about overhead, getting sued by customers, or suing customers just to get paid. I find it a thrill to be in my own little world and not at the mercy of anyone else. I’m no longer subservient to anyone.
But I know I have to keep my thrill-seeking under wraps. At one point in the past my thrill-seeking nature resulted in a huge loss in the markets. I went flat broke when tech stocks were cut in half and I was 50 percent margined. It took the huge hit in 1997 for me to realize that trading is a very serious business. I need to always remember that, otherwise my thrill-seeking comes out. and I know I will lose money if it does. I think I learned my lesson, and because of it, today I am more careful about the thrill-seeking aspect of trading.